From set up fees to interest rate calculations, we look at the full picture
Understand the total cost of equity release before choosing a provider
One of the most appealing things about using equity release to unlock some of the value
tied up in your home is that the money you take may not have to be paid back for many years.
Your provider should make sure you have a full understanding of the cost of equity release,
including any initial set up fees, interest rates (for lifetime mortgages) and advice fees before you take out a product.
With some lifetime mortgages you can choose to pay some or all of the interest monthly. By doing this,
or by taking the money in instalments through a drawdown scheme rather than taking the full amount available as an initial lump
sum, you can reduce the overall amount of interest you pay.
For a home reversion plan (not offered by Saga Equity Release):
You sell all, or part of, your home to a home reversion provider in exchange for a tax-free lump sum or monthly income. This will
be at a discount of the market value.
When your home is sold after you die or go into long-term care, the home reversion company
gets their share of the sale.
If you sold the entire property to them, they'll get all the proceeds.
What are the equity release set up costs?
Equity release set up costs will vary again according to the provider and how much you borrow. With a lifetime mortgage, you can add some of these set up fees to your loan to
avoid too many upfront costs.
With providers, some costs you could be facing include:
Application fees: just like taking out a regular mortgage, you might be
charged an application fee that covers set up costs.
Valuation fees: you'll need to have proof of a recent valuation of your
property. Some estate agents will do this free of charge.
Surveyor fees: you may need to pay for a survey of your property.
Equity release solicitor fees: a solicitor will take care of all the
legal work on your behalf.
Equity release advice fees: some providers will charge a fee for advice either before
you start to talk to them or on completion of your agreement. The way such charges are
dealt with can vary – some firms will offer cashback deals or add the costs to the total
Equity release interest rates can fluctuate over time. In April 2023 in the Equity Release Council's (ERC) Spring Report, they shared that average interest rates on lifetime mortgages peaked in November 2022 and had fallen for five successive months to 6.21% in April, with advertised rates as low as 5.52%. This information was correct as at April 2023 when the ERC released their report but keep in mind that rates can change regularly.
With a lifetime mortgage where you are not making full monthly payments equity release interest
rates work like this:
Interest is usually calculated daily and added monthly to the original loan each year
and the next year’s interest is calculated on the new total – i.e., the interest is compounded or rolled up.
With some products you do have the opportunity to pay the interest to prevent the debt adding up. With the Saga Lifetime Mortgage, provided by Just, you can choose to pay some or all the monthly interest amount.
This means that the total amount you owe increases over time, but none of this has to be repaid until you die or
move into long term care, and with the no negative equity guarantee, you won't owe more than your house is worth,
or leave your loved ones with debt.
What's the total cost of equity release?
With a lifetime mortgage, the total amount to be repaid when you die or move permanently into long-term care depends on:
The amount of equity you've released
How long you've had the loan
The rate of interest charged
Any additional fees that haven't been cleared at the start of your agreement, such as the set-up costs,
which according to MoneyHelper might be anything between £1,500 and £3,000.
A home reversion plan isn't a loan and so it won't accumulate interest. Instead,
the provider will receive the agreed proportion of the property value when it's sold following
your death or permanent move into long-term care. No-one will know the monetary value of that
proportion until the property is sold.
For example, imagine you sell a 40% share in a property worth £200,000 in return for a lump sum
of £40,000. This is at a discount to the £80,000 that this share is actually worth because the
provider will have to wait many years to get its money back.
If your house was eventually sold for £300,000 after you died or moved into care, the provider
would be entitled to £120,000 of the sale proceeds.
The Saga Equity Release team will help you find out whether equity release could help you. Saga Equity Release
is provided by HUB Financial Solutions Ltd and is for those aged 55 or over with a UK home worth at least £70,000. Find out more with no-obligation advice from a specialist equity release adviser.
As part of the service, the adviser will consider alternatives to equity release based on your personal circumstances. Please be aware that equity release will reduce the value of your estate and may affect your entitlement to means-tested state benefits.
Saga Equity Release is an advice service that can help you discover the ins and outs of releasing equity from your home without any pressure or any obligation to take out an equity release product. But if you do decide to take out a Saga Lifetime Mortgage, you'll need to pay an advice fee of £799.